May 25, 2015

The National Structured Settlement Trade Association (NSSTA), in partnership with CLM Advisors, has recently completed a three-part structured settlement survey project of senior claims executives (Part 1), claims professionals (Part 2) and plaintiff attorneys (Part 3) the results of which provide NSSTA members with marketing tools for discussions with the audiences surveyed.

Complementing NSSTA's surveys, NSSTA member and structured settlement provider Prudential recently published the results of its own 2013 survey of 400 claimants who had entered into a settlement of a physical injury or workers’ compensation claim of at least $100,000 from 2003 to 2013.

Considered together, these four surveys provide valuable insights into how key stakeholders currently view the structured settlement market. They also provide a point of reference for, and comparison with, other structured settlement market surveys several of which have been completed or updated since S2KM published this previous blog post in November 2008.

What follows are brief summaries of prior structured settlement surveys. In subsequent blog posts, S2KM will review and evaluate the most recent NSSTA and Prudential surveys.

NSSTA 2006: Survey of Plaintiff Attorneys and Structured Settlement Recipients - This NSSTA-sponsored survey was titled:"A Study of the Structured Settlement Process Conducted on behalf of the National Structured Settlement Trade Association" and was directed by Robert E. Hoyt, the Dudley L. Moore, Jr. Chair of Insurance at the Terry College of Business at the University of Georgia. It consisted of attorneys involved in structured settlements (43 telephone surveys) and structured settlement recipients (1275 telephone and Internet surveys). Among the reported results:

Only 7% of personal injury settlements between $75,000 and $100,000 include structured settlements; and only 30% of personal injury settlements above $1 million included structured settlements.

American General 2007: Survey about Structured Settlement Public Awareness - Sponsored by AIG American General and conducted by Esearch.com, Inc. in September 2007, this survey included 1000 U.S. participants - 80% had no connection with any personal injury case; 20% had previously been involved directly or indirectly through a family member in a personal injury case. Respondents who had no connection to a personal injury case were asked to read two hypothetical scenarios and answer questions on how they would react.Those with a direct connection to a personal injury case were not only asked to read the hypothetical scenarios, but also to answer questions based upon their real life experience. AIG's conclusion: the structured settlement industry needs to better educate Americans about structured settlements.

Jeremy Babener 2009: Dissipation Legal Research Paper - Titled "Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlements," this paper examines and challenges the myth of the squandering injury victim. In it, Babener refutes the existence of any published study supporting the statistic that "90% of lump sum recipients dissipate their recoveries within five years" and identifies 12 existing dissipation studies relevant to structured settlements that reach a contradictory conclusion: injury victims have no greater propensity to dissipate money than non-injury victims.

Daniel Durbin 2013: Survey of Structured Settlement Brokers - Durbin, a former NSSTA President and Senior Structured Settlement Sales Manager with Allstate Life, conducted an informal survey with a group of leading structured settlement brokers to obtain their input and evaluate their interest in representing a potential new structured settlement product provider. Durbin identified himself as part of an investor group of individuals including insurance executives who see underdeveloped opportunities in the structured settlement primary market. Although Durbin has not published the results of his survey, he has presented to several industry groups and stated that the survey showed the interest is high as long as the new firm is financially strong with competitive rates.

Melissa Evola Price 2002-2015: Quarterly Reports of NSSTA Member Structured Settlement Annuity Provider Sales - Melissa Evola Price's quarterly structured settlement report, selectively distributed to NSSTA members, is now copyrighted by her company, Structured Financial Associates, Inc. (SFA). Price and SFA have granted S2KM permission to publish selected portions of her report on both S2KM's blog ("Beyond Structured Settlements") and the structured settlement wiki. Her reports include historical data from 1975-2001 which is sourced with permission from "Structured Settlements and Periodic Payment Judgments" (S2P2J). Evola Price most recently reported 2015 first quarter structured settlement annuity premium of $1,332,047,252, an increase of more than $230 million (21%) compared with the 2014 first quarter structured settlement annuity premium of $1,101,839,529.

March 26, 2014

The introduction of two non-traditional "structured settlement" products underscores the expanding role of annuities in personal injury settlement planning (settlement planning) but also raises fundamental questions about suitability, due diligence and industry education.

Pacific Life recently announced a new structured settlement product called an "Index-Linked Annuity Payment Adjustment" (ILAPA). Investment performance and annuity payments will be linked to the Standard & Poor's 500 Composite Stock Price Index, according to structured settlement brokers who participated in Pacific Life's online product introduction. Although Pacific Life hopes to launch its new product by April 1, 2014, the launch date depends on whether and when Pacific Life receives a favorable IRS Private Letter Ruling.

Havelet Assignment Company (Havelet), an independently owned company based in Barbados, is now offering non-qualified (under IRC 130) product plans for claimants or contingent fee attorneys to defer receipt of their settlement award or fee on a pre-tax basis. The plans are funded with investment portfolios, selected by the claimants or attorneys, which Havelet "wraps" with variable annuities. Havelet must issue a private placement memorandum to each prospective client. Investment performance is not guaranteed. Minimum investment funding is $500,000.

Outside of the settlement planning market, equity-indexed and variable annuities represent increasingly popular investments. A March 12, 2014 New York Times article titled "Annuities Not for Everyone, but They Have a Place" cites the following LIMRAstatistics:"Variable and indexed annuities accounted for 80.8 percent of the $688.2 billion of annuities sold in the three years through 2013, compared with 74 percent in the previous seven years."

Based upon the most recent Towers WatsonAnnual Study of United States Tort Cost Trends, and utilizing Tower Watson's 2002 "best estimate" of payout percentages, S2KM estimates more than $160 billionper year of United States tort costs have represented payments to personal injury victims and their attorneys since 2006.

Pacific Life and Havelet's new product offerings add to the growing list of settlement planning products which S2KM noted in its blog report about the AAJ 2014 Winter Meeting. Additional marketing feedback S2KM received from structured settlement brokers who exhibited at the AAJ meeting:

Structured settlement annuities are one of several product offerings (including single premium immediate annuities (SPIAS), fixed-indexed annuities and managed money) some leading structured settlement brokers are already selling.

At least one leading structured settlement brokerage company sold more SPIAs and fixed-indexed annuities combined during 2013 than structured settlement annuities - and uses SPIAS almost exclusively to fund Medicare Set-Aside Arrangements (MSAs).

What qualifications are needed to sell these products - and/or to perform due diligence on behalf of personal injury claimants and plaintiff attorneys?

Are structured settlement and settlement planning professional associations providing their members with appropriate educational programs to understand settlement annuities and address related suitability and due diligence issues?

June 08, 2012

Following three 2012 settlement planning conferences, what have we learned, and what do we still need to know, before settlement planning can be recognized and analyzed as a business and professional market?

Descriptions of an Emergent Profession - Several conference speakers described settlement planning as a larger and more complex successor business and profession for structured settlements. For example, Jack Meligan stated: "SSP and its members have been promoting the practice of Settlement Planning as a more comprehensive solution for the financial issues facing personal injury victims and their families, and the profession of Settlement Planning as the next evolutionary step for members of the financial and legal communities that serve these injured Americans."

Government Benefit Updates - Integrating financial and insurance products with available government benefits represents one of the most important settlement planning priorities and requires effective interaction among multiple settlement planning participants. The conferences highlighted settlement planning roles for special needs attorneys as well as financial and insurance professionals. In addition, government benefit developments related to settlement planning were discussed including new requirements for liability Medicare Set-Asides (MSAs) and special needs pooled trusts as well as the Patients Protection and Affordable Care Act.

Tax Law Updatesand Improvements - In addition to integrating tort settlement proceeds with government benefits, settlement planning requires careful tax planning and specialized document drafting. The SSP conference featured Robert Wood and Jeremy Babener, who provided tax law tips and updates for settlement planners, as well as David Higgins, who proposed a potential tax law alternative to expand the use of structured settlement annuities in settlement planning.

Business Standards and Practices Discussions - The SSP's "Standards of Professional Conduct for Settlement Planners" (SSP Standards) represents a significant accomplishment and valuable industry resource. Professor Carl Pierce, who helped review and draft the SSP Standards, continued his analysis of related settlement planning issues as part of the Risk Settlement Planning Practicum. Karen Meyers, Director NSSTA's Certified Structured Settlement Consultant (CSSC) program, led a discussion about product suitability during the SSP Annual Meeting.

Unanswered Questions

Despite continuing educational progress, however, certain questions about the settlement planning market still need to be prioritized and addressed before settlement planning becomes a recognized business and profession. Among the most fundamental and important:

What types of settlements comprise the settlement planning market?

How large is the settlement planning market?

Is the settlement planning market increasing or decreasing?

What informational resources exist to help answer these questions?

Towers Watson Updates

Beginning with the last question, S2KM recommends the Towers Watson updates on "U.S. Tort Cost Trends" as a starting point for discussing the settlement planning market. Since 1985, Towers Watson (and its antecedent Towers Perrin) have published 15 such updates with the most recent 2011 update analyzing U.S. tort costs from 2010. Each study:

The tort costs in 2010 ($264.6 billion) were the highest in U.S. history and represent a 5.1% increase from $251.8 billion in 2009. Towers Watson estimates the 2010 U.S. tort system cost approximately $857 per person, versus $820 per person in 2009.

Towers Watson attributes the increase to the April 2010 Deepwater Horizon drilling rig explosion and resulting oil spill in the Gulf of Mexico. Absent the costs from this event, Towers Watson estimates 2010 tort costs would have decreased 2.4% from 2009.

Since 1984, tort costs as a ratio of U.S. Gross Domestic Product (GDP) have ranged from a low of 1.70% to a high of 2.30% with relatively rapid increases in the ratio during the mid-1980s and early 2000s offset by intermittent and multi-year declines in the ratio.

Since 1950, even adjusting for inflation, increases in U.S. tort costs have far exceeded U.S. population growth. However, inflation-adjusted tort costs per capita were 16% lower in 2010 than in the peak year of 2004.

The weak U.S. economy has had a notable impact on commercial auto insurance claims. 2010 tort costs were the lowest since 2000 and 19% lower than 2004.

Although medical malpractice costs have increased at an average annual rate of 9.7%, versus 7.5% for all other tort costs, since 1975, growth in medical malpractice costs from 2005 to 2010 averaged only 0.3% per year.

Identifies "fracking" (a natural gas drilling process that extracts natural gas from shale by using water and chemicals which could result in contaminated drinking water) as a new area of litigation where defense costs are beginning to mount.

Note: Towers Watson discontinued this latter portion of its analysis in 2002, according to Russ Sutter, a Tillinghast principal and actuary who directs the Towers Watson study, "primarily because we lack reliable information from plaintiff attorneys". These percentages therefore represent Towers Watson's "best estimate" in 2002.

S2KM assumptions: lacking alternative estimates of tort cost payment categories and percentages, Towers Watson's "best estimate" in 2002 for 2001 U.S. tort costs continues to represent the most reliable annual analysis of U.S. tort dollars paid to claimants and their attorneys.

January 17, 2011

This S2KM blog post summarizes the emerging business and professional models that are competing with the traditional structured settlement models. It continues S2KM's series analyzing structured settlement business standards and practices.

What are the traditional structured settlement business and professional models?

What problems have traditional structured settlement models created that have restricted industry growth?

Subsequent S2KM blog posts will address differences between the new structured settlement business standards and practices and the business standards and practices associated with traditional structured settlement models.

The traditional structured settlement "claim management" business model and "annuity broker" professional model are being challenged by a more comprehensive and customer-centric "settlement planning" model. Settlement planning, sometimes referred to as "special needs settlement planning" or "settlement consulting", proposes a different set of business standards and practices than traditional structured settlements. Although structured settlement "annuity brokers" participate in the settlement planning market, other product and service providers also participate. Individually or collectively, all of these professional participants may be referred to as personal injury or special needs "settlement planners" or alternatively as "settlement consultants".

The Society of Settlement Planners (SSP) has become the preeminent architect of and advocate for the settlement planning business model. In 2008, SSP adopted and published its "Standards of Professional Conduct for Settlement Planners". The Preamble (subtitled: "A Settlement Planner's Responsibilities") to SSP's Standards of Professional Conduct incorporates the following descriptions of settlement planners:

"A settlement planner is a representative of a person participating in the design, negotiation and implementation of a settlement or satisfaction of a judgment for the benefit of a person claiming a legal entitlement to an award of damages or other compensation."

"A settlement planner may represent a plaintiff, a defendant, an insurer, a guardian ad litem, an heir of a claimant, an attorney, or another person participating in the settlement process."

"Settlement planners may provide advice and other services to their clients concerning claim valuation, negotiation strategy, the determination of rated ages based upon impaired life expectancy, life care planning, ..., allocation of proceeds, taxable and non-taxable periodic payments, structured settlements, [Medicaid and Medicare preservation], investments, irrevocable trusts, assessment of a plan's financial risk, and estate liquidity for tax planning.

"....[T]o the extent permitted by these rules, [settlement planners] may provide advice and assistance to payees in connection with the factoring of a structured settlement plan."

"Settlement planners may also play other roles ...such as a lawyer representing a claimant or obligor, a financial planner, an annuity broker, or a sales agent for an issuer of an annuity or provider of trust-based investment management products."

Although the settlement planning marketencompasses the structured settlement market, it is substantially larger and more complex. Based on market surveys, estimates of the total annual U.S. market for potential personal injury settlement planning products exceed $160 billion (source: Towers, Perrin Annual Updates of U.S. Tort Cost Trends) compared with a current annual primary structured settlement annuity market of less than $6 billion.

Because the settlement planning market is emerging and its definition is complex with multiple professional participants, settlement planning education, certification and business models are still evolving. Settlement planning business models are also subject to change based upon continuing legal, technology and product developments.

Among professional primary market structured settlement participants, both SSP and the National Structured Settlement Trade Association (NSSTA) offer educational programs featuring settlement planning components. SSP's annual educational conference is open to non-SSP members and SSP encourages attendance by non-SSP settlement planners. NSSTA's educational conferences are restricted to NSSTA members and focus more narrowly on structured settlement topics.

How does the emerging "settlement planning" business model differ from the traditional structured settlement "claim management" model? From a structured settlement perspective, the settlement planning business model is more claimant-controlled and customer-centric and subject to greater supervision than the traditional structured settlement claim management business model. Here are some of the developing characteristics:

Among those valuable presentations was Evan J. Krame's analysis titled "Not Very Special Trusts: Fixing Trusts to be Special and Using Pooled Trusts". As part of his ASNP trust analysis, Krame introduced a document he wrote
titled "25 Questions to Evaluate Pooled Trusts".

In addition to his legal practice and teaching activities, Krame serves as President of Shared Horizons, Inc. Shared Horizons is trustee of the Wesley Vinner Memorial Trust (a pooled trust) serving people with disabilities in the District of Columbia and Maryland.

Krame has granted permission for S2KM to re-publish his list of 25 Questionshere in S2KM blog format.

Trust Structures

Check the Trust Agreement and Joinder Agreement? What do the
documents say? For example, what powers does the trustee have?

Is
the trust approved and monitored by any state agencies?

Who/what
is really serving as the trustee? Is it the non-profit organization
that created the trust or is it a third party hired to administer the
trust?

Is this Trust Right for You?

What are the costs of participation? Is there an initiation fee,
an annual fee or a termination fee?

How are the disbursements
approved? What is the ease and method of disbursements? Who signs
disbursement checks?

What is the availability of advocacy on
behalf of the beneficiary?

How do they manage public benefit
issues?

How do they monitor the beneficiaries?

Will the
trust own illiquid or uncommon assets such as cars or homes?

Trust Management

What is the reputation of the non-profit and/or trust management
organizations?

What is the organizational structure? Check on
staff, space and activities.

Who are the officers of the
non-profit? What are their skills and background?

What is the
function of the board of the non-profit trustee?

How long has
the trust been in existence? Is there any reason to believe it could
fail? How appropriately is the pooled trust compensated?

How are
the trust assets invested? Is there an investment policy in force that
is followed? Is there an independent investment adviser? Is there an
investment review committee? Is there an allocation model?

How
do they maintain separate shares? Do they uphold the duty to segregate?

Is
there liability and casualty insurance in place?

How do they
meet their duty to inform? Are statements provided to beneficiaries and
state agencies (as required)?

How do they meet their duty to
account?

How do they maintain their records? Are they precise,
complete and accurate?

March 03, 2010

This S2KM blog post strategically analyzes the National Academy of Elder Law Attorneys (NAELA) 2010 Special Needs Summit from a structured settlement perspective. A prior S2KM post summarized
the NAELA Special Needs Summit. A subsequent S2KM post will
strategically analyze the NAELA Special Needs Summit from the
perspective of Internet-based knowledge management.

For related S2KM learning resources, see S2KM's public read-only wikis:

From a structured settlement perspective, the strategic business overlap with special needs attorneys encompasses disabled personal injury victims, their families and trial attorneys.
Various knowledge leaders, knowledge networks and communities of practice within this strategic business and public domain utilize
alternative terminology to describe their businesses without comparative analysis of the terminology itself. Here are some
recommended resources to help special needs attorneys understand this
growing legal market segment:

S2KM regularly attends and publishes reports summarizing and analyzing national educational conferences
sponsored by selected professional associations and universities whose
speakers and attendees participate within the strategic business overlap of
structured settlements and special needs law:

Why should special needs attorneys be interested in structured settlement law? This S2KM structured settlement diagram
summarizes a complex legal and financial transaction that requires
special needs legal knowledge, documentation and representation and
also presents business and career opportunities for special needs
attorneys:

In publishing JGW survey questions and results, S2KM has altered the order of JGW's survey
questions and responses as reported to S2KM - but not the questions or responses
themselves. S2KM's purpose: to better present and highlight those JGW survey
questions and results S2KM believes are most important for the
structured settlement and settlement planning industries.

115 persons participated in the JGW survey. Not all participants answered every question.

All
JGW survey participants were structured settlement recipients who have
sold some or all of their payment rights to JGW through state court
approved structured settlement transfers pursuant to IRC section 5891
and one of the 46 state structured settlement protection statutes.

JGW Primary Market Survey Questions

How many years ago did you settle your original lawsuit?

When you settled your original lawsuit, why did you accept payments over time rather than a single lump sum of cash?

How satisfied are you that you accepted a structured settlement?

Do you wish you and your attorney had negotiated for a single lump sum settlement?

When you settled your original lawsuit, how well informed were you about structured settlements?

JGW conducted its own survey. NSSTA and AIG retained outside resources to conduct their surveys.

JGW, NSSTA and AIG each appear to have utilized Internet communications as part of their surveys.

JGW's survey participants are all structured settlement recipients who have sold structure settlement payment rights to JGW.

JGW's survey does not include attorneys for structured settlement recipients or lump sum recipients.

By
comparison, NSSTA's survey includes some attorneys and structured settlement
recipients as well as lump sum settlement recipients. NSSTA has not
indicated whether any of its survey participants have sold structured settlement payment rights.

AIG's
survey is more hypothetical and does not confirm whether any
respondents have sold
structured settlement payment rights.

By
comparison, neither the NSSTA survey nor the AIG survey ask any
questions about structured settlement liquidity features or secondary
market transfers.

JGW's survey focuses upon the reasons
115 structured settlement recipients: 1) agreed to a structured
settlement; and 2) subsequently sold (transferred) some or all of their
structured settlement payment rights.

In addition, JGW's
survey asks these 115 structured settlement recipients to evaluate retrospectively the results of both transactions.